Patriot American Seeks Survival Strategy

DALLAS? Patriot American Hospitality is forging ahead with a survival strategy shareholders hope will bail the beleaguered REIT out of its ongoing liquidity crisis, setting the stage for new financial partner Apollo Real Estate Advisors to take the reins and rescue the company from insolvency. At presstime, analysts and industry insiders were expecting Apollo? barring a last minute bid from Hilton? to begin calling the shots as to Patriot?s future direction, which may include the sale of the Summerfield Suites brand and/or other assets to Hilton. In what would be an ironic twist to the complicated negotiations, the Patriot American board? freshly infused with seven Apollo votes? seems determined to establish long term stability for the company by holding onto its core assets, most of which are high-profile Wyndham and luxury properties, instead of selling them to Hilton for a quick grab at cash. Shortly after it was widely speculated that Hilton would purchase $1 billion of assets from Patriot, the REIT opted instead to grant 42% equity to Apollo for $1 billion in preferred stock. Apollo may now use its considerable leverage and voting power within Patriot to sell-off the Summerfield Suites extended-stay product and other non-core assets to Hilton. Analysts across the board believe this is the best possible scenario for Patriot American, one which will result in a return to health for the company in the long term. It is believed that Patriot must hold onto its high-profile Wyndham and luxury properties to remain strong after the liquidity crisis is behind it. Selling off these core-assets to Hilton would probably have given the REITs stock a jolt in the short term, analysts say, but could effectively kill the company?s future growth strategy. ?There is a distribution strategy at work here. Patriot can?t afford to sell 5 or 6 of the best Wyndham properties out of the chain, that would really hurt them,? BT Alex. Brown lodging analyst Mark Mutkoski said. ?Selling Summerfield Suites to Hilton makes sense.? Some shareholders were reportedly upset with the refusal of Hilton?s reported offer, but most feel the decision to partner with Apollo is a sound one. Many shareholders bought into Patriot, along with other REITs, expecting regular quarterly dividends. Analysts are also expecting Patriot to soon give up its REIT status. ?If a shareholder was in [Patriot] for a dividend, well its going to be significantly reduced, if there are any,? one source close to the negotiations said. ?But over the longer term, this company is going to have a strong balance sheet and substantial cash that will enable it to grow. It?s going to be a solid $20 stock 1 to 3 years out. This was a company that was close to meltdown; shareholders should be thrilled.? With its stock values still floundering and with lenders knocking on the door in search of more than $1.7 billion owed them, analysts say Patriot American is looking to make the best of a bad situation by securing long-term stability in favor of short-term dilution at the hands of opportunistic investors. Mutkoski added that most shareholders have reached ?maximum pessimism? with the REITs ongoing financial crisis and should perceive any deal which keeps the company solvent a good one. ?It?s certainly better than no deal,? he said. Patriot must now restructure more than $3 billion in debt and other obligations, accrued as a result of the company?s torrid acquisition spree over the course of the past year, using some of the cash now at its disposal. Some analysts have speculated that Patriot was swayed toward dealing with Apollo as a result of ties between that company?s leadership and Patriot Chairman/CEO Paul Nussbaum. Apollo?s William Mack? who oversees the group?s real estate investment operations? is widely known to be a personal friend of Nussbaum. The two have been partners in other real estate ventures and both sit on the board of Mack-Cali Realty Corp. ?That has about zer